Adani Power Ltd
NSE:ADANIPOWER
Earnings Call Analysis
Q2-2024 Analysis
Adani Power Ltd
Adani Power celebrates a triumphant second quarter in FY '24, heralding a period of vigorous growth with significant surge in volume, revenue, and profits. The broader Indian power market, riding a robust growth wave, underpins this success, which is punctuated by a 7% rise in power demand and a record peak demand of 240 gigawatts. The company confidently stands on the precipice of emerging opportunities within the power sector, backed by operational stability of newly commissioned power plants and successful turnaround of acquisitions, such as the Mahan power plant.
Through astute delinquency toward debt management and surplus cash flow utilization, Adani Power more than doubles its recurring profit before tax to INR 2,443 crore in Q2 FY '24, compared to the previous fiscal year. Additionally, factoring in one-time income led to a profit before tax figure of INR 5,224 crore for the quarter.
The company's liquidity position has markedly improved, benefiting from enhanced fuel cost recovery and punctual payments from distributors, leading to a healthier balance sheet evidenced by a significant reduction of total debt from INR 42,242 crore to INR 32,214 crore. Leverage indicators have become more favorable, showcasing solid cash flows and promising a brighter outlook for asset coverage and debt-to-EBITDA ratios.
Adani Power is steadfast in its dedication to ESG principles and surpasses global averages with impressive rankings and scores, including a 'B' rating from the Carbon Disclosure Project and a score of 54 out of 100 by S&P Global. It is certified as Single-Use Plastic-Free at a majority of its operating locations and has aligned its corporate social responsibility with the UN Sustainable Development Goals focusing on health, education, and sustainable livelihood programs. This comprehensive approach to corporate stewardship not only reflects operational excellence but also reinforces the company’s commitment to social development and environmental responsibility.
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Ladies and gentlemen, good day, and welcome to Adani Power Limited Q2 FY '24 Earnings Conference Call hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Mohit Kumar from ICICI Securities. Thank you, and over to you, sir.
Thank you, Aman. Good evening. On behalf of ICICI Securities, we welcome you to the Q2 FY '24 earnings call for Adani Power Limited. We are pleased to host the management. Today we have with us Mr. S. B. Khyalia, CEO; Mr. Shailesh Sawa, CFO; and Mr. Nishit Dave, AVP, Investor Relations. We will start with brief opening remarks by the management, which will be followed by Q&A. Over to you, sir.
Thank you. Good evening, dear friends. Thank you for joining us for the second quarter FY '24 earnings call of Adani Power Limited. I'm honored to address you on behalf of this dynamic and energetic Company. I'm pleased to report that in the second quarter of FY '24, Adani Power has achieved exceptional financial performance with remarkable growth in volume, revenues, and profits. This success is a testament to the hard work and dedication of our team and the unwavering support of our valued stakeholders. The Indian power market and the broader economy have been on a robust growth trajectory over the last 3 years, breaking away from era of slowing growth.In the 6 months ended 30th September, 2023, aggregate power demand of country grew by 7%, while peak demand has set a record high of 240 gigawatt. Power demand is projected to grow at a similar rate over the next few years. These growth opportunities have created a conducive environment for the power sector, and Adani Power is poised to seize the opportunities that lie ahead.Most of our regulatory matters have found satisfactory resolution. The recently commissioned Godda power plant has achieved operational stability and high levels of availability. The Mahan power plant, which was acquired in Financial Year 2022, has also been turned around successfully. Adani Power now is a financially strong organization with excellent revenue visibility, margin stability, and low leverage.As we [ took ] to the future, the power sector in India presents a landscape of immense potential. While there is a strong focus on renewable energy, it is crucial to acknowledge that thermal power generation remains an integral part of India's energy mix. It serves as the cornerstone for supplying base load power and bridging the gap during periods of low renewable energy generation.Adani Power is committed to leveraging our strength and capabilities to contribute significantly to India's energy security and sustainable growth. We will continue to invest in cutting-edge technology and explore avenues for cleaner and more efficient coal-based power generation.The company has also continued to maintain its leadership in matters related to ESG and achieved higher scores than its global peer group average in a number of evaluations. As a responsible corporate citizen, we will continue to work on our ESG initiatives, supporting social projects and community initiatives in harmony with the United Nations Sustainable Development Goals, and support the local communities where we operate, with a focus on positively impacting lives and improving livelihoods.In conclusion, I am confident in the bright future that lies ahead for Adani Power. Our unwavering commitment to excellence, combined with the robust fundamentals of the Indian power market, positions us well for [ continuous ] success. I look forward to working closely with all stakeholders as we embark on this exciting journey together.Thank you for your interest in Adani Power, and I now invite Mr. Shailesh Sawa, the CFO of the company, to take you through the financial highlights for the recently concluded quarter. Thank you.
Thank you, [ Khyalia ], sir. Good evening, friends. Let me begin by saying that Adani Power has now cemented its position as a highly competitive and desirable power generator. I am pleased to share some key developments that have contributed to our financial transformation. The successful resolution of our regulatory issues has brought much-needed clarity and stability to our operational landscape. It has also redefined our path forward and created a foundation upon which we can build a financially resilient future.Further, we have judiciously utilized the cash accruals to reduce the debt on our balance sheet. This strategic move, in addition to our improved operational profitability, has enabled us to emerge as a financially stronger company. We have maintained high level of plant availability under our contractual commitments, which has enabled us to fully recover fixed capacity tariffs under PPAs.Also, capitalizing on our competitive strengths, we have been able to utilize our untapped capacities gainfully in the merchant and short-term markets, which has further helped us improve our profitability. We have a clear vision of ensuring that Adani Power remains a financially strong power producer, delivering value to our stakeholders.I hope you have downloaded and gone through our earning presentation, which has been uploaded on our website. I will now cover the performance [ update ] for the quarter and half year ended, that is, September 2023.I will start with operating performance. We have maintained high availability of our power plants consistently by following reliability centered maintenance utilizing cutting edge technology. During Q2 FY '24, APL achieved consolidated PLF of 58.3% and power sales volume of 18.1 billion units, which was substantially higher than the performance during the corresponding quarter of FY '23. This also includes the performance of the 1,600 megawatt Godda power plant commissioned in the first quarter of the financial year.During the quarter, PLF and dispatches improved due to higher power offtake in Mundra, Udupi, Raipur, and Mahan plants, apart from the incremental contribution of Godda, which has ramped up its operations satisfactorily in a short time after commissioning.Coming to financial performance. During the second quarter of FY '24, APL registered a strong all-round growth on the basis of higher operational levels. Here, I am comparing the recurring revenue of Q2 FY '24 with the reported revenue of Q2 FY '23 to highlight the fact that we achieved stable revenue and profitability growth even without considering one-time income in the recently concluded quarter.We posted a strong 44% growth in consolidated recurring revenue before considering one-time income as compared to reported revenue of Q2 FY '23. Recurring revenue for Q2 FY '23 was INR 12,165 crore. This revenue growth was on account of high availability of our fleet, [ increased ] inclusion of Godda plant, higher dispatches under contracts due to growing power demand and also merchant sales.In comparison, a reduction in reported fuel prices resulted in fuel costs increasing at a lower rate than 29% for Q2 FY '24, while other operating expenses increased by 27%, largely due to inclusion of Godda power plant and higher PLF.As a result, recurring EBITDA for Q2 FY '24 grew by 85% to INR 4,336 crore before considering one-time income already reported EBITDA for Q2 FY '23. This demonstrates the inherent profitability and cash flow generation ability of the Company.Depreciation charge has increased over Q2 FY '23 due to the commissioning of the Godda power plant. On the other hand, finance costs have been under high degree of control due to our efforts at deleveraging to [ prudent ] utilization of our surplus cash flow. Consequently, recurring profit before tax before considering one-time income grew by more than 2.5x to INR 2,443 crore as compared to Q2 FY '23.After inclusion of one-time income on account of prior period [ of ] revenue recognition of INR 2,781 crore in the form of regulatory claims for domestic coal shortfall, carrying costs and late [ payment ] surcharge, profit before tax for Q2 FY '24 was recorded at INR 5,224 crore. Profit after tax for Q2 FY '24 was INR 6,594 crore and included recognition of INR 1,371 crore of deferred tax asset during the quarter.Coming to our balance sheet and cash flows. Recoveries of past years have also added to the net worth of the company. At the same time, we became a debt-light company due to pre-payment of a part of our debt. The liquidity situation has also improved as a result of better fuel cost recovery and timely payment from DISCOMs, which has resulted in a major improvement in the balance sheet health. As mentioned previously, APL has reduced its leverage significantly, with total debt coming down to INR 32,214 crore as of 30th September, 2023, as compared to INR 42,242 crore as of 31st March, 2023. These numbers also include working capital numbers.As a result, key leverage indicators have improved significantly, pointing at a healthy balance sheet and strong cash flows. For example, the fixed asset coverage ratio has improved by over 40% over this period, while debt/EBITDA based on trading 12-month recurring EBITDA has become nearly half. It must also be noted that the contribution of the Godda plant to the trading 12-month recurring EBITDA is for only part of the period, while the project debt is reflected fully in the balance sheet. This ratio will improve even further on a full year-run basis.Coming to ESG. Our guiding principles are based on the UN Global Compact and Sustainable Development Goals. We follow the Global Reporting Initiative to report our performance on ESG parameters. The focus areas of our activities follow the UN Sustainable Development Goals framework and we obtain external assurance for ensuring the robustness of our reporting.On the emissions front, while APL operates well below the statutory [ ceiling ], we have also taken proactive steps to control emissions at the combustion level itself. We are utilizing ultra-supercritical equipment exclusive for our new power plant. Further, as a part of our efforts to [ control ] critical resources, we are focusing on reducing the consumption of fresh water at our Hinterland plant and to maintain it below statutory [ limits ].On an aggregate basis, APL has been able to stay consistently below the [ limit ] of 3.5 cubic meters per megawatt hour and operate the plants at an average of 2.3 cubic metersper megawatt hour of specific water consumption. At APL, we focus on 3 relevant areas from the UNSDG basket. These areas fall under health, education, and sustainable livelihoods. Both our internal and external activities falling under areas of human resource development and occupational safety and CSR activities cover these areas.As a part of our CSR, we have community development programs such as good health and well-being, quality education, and decent work and economic growth running at various rural locations. Further, as a part of SDG framework adopted for our business locations, we also have high quality training under Adani Power Training and Research Institute and an intensive health and safety initiative under Project Chetna.As a result of our all-round efforts in adhering to high ESG standards, APL has received [ enthralling ] scores in various ESG rankings that are at the top of the national [ PFA ] and better than the international score [ sectoral ] coverage -- [ average ]. For example, APL has received the B score for fulfilling climate change and water security commitments from the Carbon Disclosure Project.We have achieved a score of 54 out of 100 in Corporate Sustainability Assessment by S&P Global, which is better than world electric utility average score of 33 out of 100. Similarly, score 3.5 out of 5 in FTSE ESG rating, which is better than world utility average score of 2.7 out of 5. Further, we aim to achieve Single-Use Plastic-Free certification at all of our 9 operating locations, up from the 7 certified so far.In conclusion, I would like to emphasize that APL now enjoys a high degree of revenue visibility through long-term capacity tie-ups and fuel security through domestic coal tie-ups and locational advantages. APL has now entered the era of regulatory maturity with all of the major regulatory issues pertaining to domestic coal shortfall having been settled satisfactorily. Adani Power is now poised to take off successfully for the long haul as India's power demand grows strongly in line with its economy. We have also demonstrated our capabilities repeatedly in efficient project execution and turnaround of acquisitions. In nutshell, APL is financially strong and [ resilient ] entity with ample growth headroom and enjoys valuable backing of the large and diversified Adani portfolio.Thank you for your patience, and I would now like to open the forum to your questions. Thank you so much.
[Operator Instructions] The first question is from the line of Nikhil Abhyankar from ICICI Securities.
Is it possible for you to give the availability of Bangladesh plant, also the revenues EBIT and PAT for H1?
Yes. Bangladesh achieved the PLF of about 69%, and in terms of the revenue for H1, I will give you the numbers. Total revenue of INR 2,500 crore, fuel expense is INR 2,500 crore, EBITDA being INR 892 crore and PAT after providing for depreciation and finance charge is -- of INR 100 crore. And I guess yes -- yes. Let me complete. The availability is 99%.
And sir, where do we procure the coal for this?
Lastly, we have an FSA and we have been procuring from the local market as well which is largely imported and to some extent, we also use the domestic coal.
And sir, currently as of September, we have got trade receivables of around INR 105 billion. So is there any disputed amount part of this where we are waiting final judgment?
No. Our -- Largely all our issues have been resolved. What you see in the balance sheet, that is basically recognized on September 20, but subsequently the money was realized. So there is [ not ] any large outstanding towards the old regulatory trades.
And sir, how much was the unsecured perpetual debt paid off during the quarter, and also how much was outstanding at the start, say March '23, and how much was paid and how much is remaining as of date?
Yes. The perpetual debt at the beginning of the financial year, as we speak, so say April 2023, was about INR 13,000 crore, and on September 30, it [ is ] [ INR 9,000 crore ]. I will give you the rounded off numbers.
And sir, how are we placed on the orders for Mahan 2? Have we placed all the orders, or is something remaining?
Mahan 2 expansion you are talking about?
Yes, Mahan 2.
The last decade the order has been placed with BHEL. It happened about 2.5 months back, so which takes care of the substantial component of the packages. And balance as we move forward, it will be taken care of.
So, Nishit here, just one thing to add. So actually, in this project we are going with a package…
Split package.
Split package [ contract-based ] philosophy. So there is a large number of packages to be awarded. So there is a main BTG [indiscernible] the -- BTG package which has been awarded to BHEL. And then there are a number of other [ balance of ] plant and other contractual [ packages ] to be awarded over [indiscernible]…
As Nishit rightly pointed out that it is not a BTG contract-based philosophy. We are going on strict package-based philosophy. There are approximately about 50 packages that are to be contracted. BTG being the biggest one has already been placed with BHEL and same will be the process of placing the orders of contracting for the rest of the packages.
And sir, do we have any plans to add more thermal capacity going forward?
I think in public domain, we have already given the plans of about 6,000 megawatts. It's totally over and above what we have today, let us say 15,000 megawatts. I am talking about roundabout numbers. So that is already planned and under active consideration to develop.
And these are expansion projects, as you know that we have many locations and most of them have the adequate infrastructure to go for expansion. So we are evaluating it, as Mr. Khyalia mentioned, and we will move forward once the plans are formalized.
And this is the final question. What is the total CapEx expected for Mahan 2?
Mahan 2 CapEx is about -- I will give you the number, INR 12,500 crore.
[Operator Instructions] The next question is from the line of Nirav Shah from GeeCee Investments.
Congratulations on fantastic numbers. Sir, few questions. Firstly, we have a sizable open capacity. At the same time, our balance sheet has not strengthened a lot. So what is the strategy over here in terms of, will we keep it at this way or will we look to tie a part of it, or just if you can elaborate on the strategy going forward?
Yes. We have a capacity right now about -- close to about 3,000 megawatts, which is open capacity. And we keep deploying either -- the power generated goes to either to the merchant market or we keep entering into short-term [ contracts ] and then we keep renewing it as and when the tender comes. So it is 2-point strategy. Either -- and you know that the merchant market has been quite good in the last 1 year and so, so -- which has really --has largely contributed in achieving a good amount of EBITDA what we have presented to you. And we'll keep looking at opportunities which -- If short-term, medium-term [ contracts ] are coming, we do apply and [ we'll ] like to [ gain ] [ about ] open capacity accordingly. But it is something which we are not very concerned about because the last 2 years' experience has been very good in terms of deployment over open capacity.
And sir, just with the current net worth and net debt position, I mean, what is the strategy to improve our ratings and at the same time to explore the dollar funding market?
Yes. As you know, the post-merger the rating of the company has already [ put ]. We have been rated by CRISIL and India Ratings both. While India Ratings has given us A with positive outlooks and CRISIL has given A stable. And now post-merger and with lot of positive [indiscernible] that has taken place, we do intend to throw the rating again for review and hopefully in a few months from now, we can see -- of course, subjectively it will depend on their evaluation, but we are quite hopeful that the [ credit ] profile of the company has improved significantly. We [ have ] a very strong [ case ] for rating improvement. As far as the [ international ] market is concerned, at this point of time, we are not pursuing it.
And sir, on the tax rate, I mean, we have had a good amount of profits coming in the last few quarters. So what is the position on the carry forward losses, or by when will we expect to start paying, or coming under the normal tax bracket?
Now, I'll tell you that we have about -- carry forward losses about of -- as we speak on September 30, about INR 25,000 crore -- INR 24,000 crore, INR 25,000 crore, and that will give us enough shield for about next 1.5 years. And where will -- and then let's see how it goes, and [ hopefully ] we may come in the tax bracket.
And last question is on our inorganic opportunities. I mean, in the media, it's coming about for the 2 plants. But overall, what is the strategy over here?
See, I must tell you that today our fleet of 9 -- 8 operating plants now. 4 of them have been [ applied ] by us. And if you look at our track record, we have a strong track record of turning around these [ abstract ] assets. So we do value these opportunities as and when they come in the market or come to our light. And depending upon the cost benefit analysis, the cost at which it is available, the terms, we evaluate it and take a call whether we have to go for it or not.
[Operator Instructions] The next question is from the line of Dhruv Muchhal from HDFC AMC.
Sir, first question was on the Gujarat PPA. I think there was some readjustment in the last quarter. Does it continue even in the current quarter? And have we -- I mean, what is the, I mean, approach that we're taking for that adjustment? I mean, are we providing for it or is it part of EBITDA or revenue?
Yes. Rajiv, you will take this?
Yes. In the last quarter, we took an adjustment of around INR 1,200 crore because of the index adjustments. Because the -- as per the CRC order, the tariff computation is based on the GR -- based on the base rate and the CRC indexation as for the 6 months. So considering this order, we have took an adjustment of INR 1,200 crore and thereafter we are continuing to recognize the revenue based on the same method. So there is no subsequent adjustment required.
So on recurring basis, I mean, it is in line with what the order or what the…
What the CRC order says, yes.
This was first. The second question sir, was from 1 year to probably 3, 6 months [ basis ], we are seeing that the coal inventory across the system seems a bit low. Probably that will influence the availability of coal and probably even in the merchant market the availability of volumes. So how do you see this impacting us or influencing us for a merchant portfolio?
Actually, the inventory of our [ systems ] is quite good and we recently concluded [ 30B ] 8 auctions. We have fortunately got good quantity and we don't foresee any issue for next 3 months. So at least for next 3 months we are very comfortable, and by the time, obviously, the possibility of further production of coal going up is there, and we don't see any challenge now in this case.
So for the next 3 months you are reasonably secured in -- from your merchant market, from merchant coal?
Correct.
And sir, last 2 quick questions is -- on the FGD, I mean, have we done the FGD CapExes, and if not, then what is the quantum that has to be done? What is the likely CapEx that you will have to do in the next 2, 3 years for that?
The -- we have about 11,000 megawatts -- 11,600 megawatts of the capacity which -- where we'll have to put the FGD in place. We've already placed the order for the FGD and the -- what do you call it, the target date, the [indiscernible], the date by which we have to have the FGD in place is between FY '26 and '27. And we are well on course and the -- small CapEx that we incurred, and going forward, basis the need arises, we will keep sending it, but [ large ] CapEx will only come towards last 2 years. But we have already placed the order, that is not something which I want -- like to clarify.
So large CapEx will come in '26, '27, not before that?
Last 2 years, because it doesn't take much time. You require about 3.5 years to have a power plant in place. For FGD installation, not more than 18 to 24 months. So large CapEx will come only in last 2 years.
And you will earn the regulated ROE, probably somewhere in that regulated ROE range, [indiscernible]…?
Across all our plants.
And sir, one last clarification on your PPT. You have given the merchant volumes, long-term PPA and this -- So in the merchant volumes, you even include PPAs -- I mean, plants where you have PPAs for say, 2, 3 years? Those are also included in that or that's part of the long-term?
That is part of the [indiscernible] -- the classification is PPA short-term and long-term both. So, if…
For example, the 2-year PPA or 3-year PPA is not part of PPA, it is part of medium and short-term, right?
Yes.
[Operator Instructions] We have the next question as a follow-up question from the line of Nikhil Abhyankar from ICICI Securities.
Sir, can you give us the plant-wise EBITDA breakup for Mundra, Tiroda -- basically all the plants?
We actually don't public -- don't publish the plant-wise EBITDA numbers. Post the merger now we have one single integrated company with Mahan and Godda being outside as separate legal entities. So numbers what we have presented -- and we would like to present the consolidated numbers. If you want PLF plant-wise, that can be given.
No sir. I wanted the EBITDA. And sir, what is our average cost of borrowing as on date, as of September '23?
It's a little above 9%. As you know, the MCLR has gone up significantly in the last 16, 18 months or so. So the cost of borrowing also -- because it is MCLR linked borrowing and current MCLR is about [ 8.45% ] and we kind of [indiscernible] some margin on that. So our average cost of borrowing is around [ 9% ] plus few points, [ 9.05% ] or so. [ That is ] cost of all borrowing.
And sir, last question. How much amount of our capacity is tied up with medium-term PPAs?
Through medium-term we have 500 megawatts tied up and rest is merchant.
Rest is merchant?
Yes. We are talking about the total capacity which is around 3,000 megawatts under open capacity. Out of that 3,000, 500 is tied up through medium-term. So effectively, 3,500 is completely merchant.
[Operator Instructions] The next question is on the line of Sumit Khemani from [ Sumich ] Enterprise.
My question is about -- how do you see the political risk extract to our Company? Say, for example, the Bangladesh situation is there, and another is the Indian political that every second day blame on the company for doing some wrongs.
I think this call is on our performance, And let us focus the discussion on the numbers and PPA and Adani Power's operations. As far as Bangladesh is concerned, we have a legally binding PPA with them, and which is backed by the sovereign guarantee. So we say we are fully secured as far as our supply power to Bangladesh is concerned. Beyond that there is no [ separate ] comments.
[Operator Instructions] Ladies and gentlemen, as there are no further questions from the participants, I would now hand the conference back to the management for their closing remarks. Thank you and over to you, sir.
Thank you so much to all the participants for your time. And it was really great interacting with you. And it has been after long gaps we are having this interaction with you. And we are happy to provide any information which you require. You can contact -- you can touch base with Nishit Dave, who basically is Head of our IR. And we'll be very happy to clarify or answer any of the queries which you may have. Thank you so very much. Thank you.
Thank you very much. Ladies and gentlemen, on behalf of ICICI Securities Limited, that concludes today's call. Thank you all for joining us. And you may now disconnect your lines. Thank you.